A third consecutive Monday with a triple digit decline.
We actually had a pretty decent week since we were only stopped out on two positions in all the extreme volatility. However, our luck will not last if the market really decides to take a dive.
I looked at about 700 charts today and most of them were ugly. More than 50% of the Russell 2000 and the Nasdaq are already in a bear market with declines of more than 20% from their highs. Every day more stocks join that group. There are a few big caps and momentum stocks holding up the market and once those lose traction is could be a rough ride.
All the major indexes put in another lower high, lower low day and that is bearish. Futures are down slightly overnight as the events in Hong Kong play out.
This is payroll week and the ADP payrolls on Wednesday are the first look at the fall numbers. The PCE in the personal income report this morning declined slightly and that means the Fed will be in no hurry to raise rates. That should be somewhat market positive but the payroll reports will be the key.
The Fed is going to end QE at the October meeting late this month and we may be seeing the initial impact on the market with these declines. Every QE end since the beginning of QE in 2009 has prompted significant market declines. I don't know of any reason why this QE will be any different but I would love to be surprised.
We are approaching the Q3 earnings cycle and we want to make sure we exit all the short term positions before the earnings dates. The 4 year high on the dollar could cause some earnings problems from about half of the S&P. That has not shown up yet in the guidance but we can expect Q4 guidance to be negative.
Send Jim an email
Long Term Positions
Current Position Changes
Here are the earnings dates for our current positions. We need to be out of the positions before the earnings. That is not applicable for the long term positions or stock held for future call writing. Covered call positions will be evaluated the week before the expiration.
ASPS - Oct-23rd
FB - Oct-29th
GPRO - Oct-30th
CLVS - Oct-30th
ISIS - Nov-3rd
ZU - Nov 5th
SRPT - Nov-6th
MBLY - Nov-6th
ARWR - Nov-11th
INSY - Nov 12th
AMBA - Dec 6th
EMES - UNK - Est Nov 6th
TKMR - UNK
PRAN - UNK
AVGO - Avago Tech (closed)
AVGO had rallied $12 since we added it back on August 18th. The Oct $72.50 put was 20 cents and there was no reason to keep it open. I recommended we close it last Tuesday.
Closed Oct $72.50 put, entry $2.20, exit .05, +2.15 gain
LNG - Cheniere Energy (Stopped 9/23)
It was not a good week for energy stocks. Cheniere was stopped out on Tuesday the 23rd with the market and crude prices crashing. LNG dropped $3 at the open to the low for the week.
Closed Dec $75 Put, entry $3.15, exit $3.35, -.20 loss.
CLR - Continental Resources (Stopped 9/24)
Continental provided a guidance update on the 17th and it was not pretty. They raised capex spending by $500 million as the result higher well costs. They have elected to spend an extra $2 million per well to frac more stages and double the amount of proppant they put into each stage. They expect 2015 production to increase by 25% as a result but the added expense this year is going to pressure earnings. Shares declined -$5 on the news to stop us out.
Closed Dec $67.50 put, entry $2.25, exit $4.65, -2.40 loss.
New Short Put Recommendations
ZU - Zulily
Zulily is an online retailer in North America and the United Kingdom. They specialize in children's clothes, toys, books, sporting equipment and women's apparel. Ask a woman with kids and she will be able to tell you all about it.
Shares consolidated all summer and they appear to be attempting a breakout over $40. Shares were up strongly at the open today but declined at the close. Because of the volatility we can sell way out of the money for a decent premium.
Earnings are Nov 5th. We will exit before earnings.
Sell short Nov $35 Put, currently $2.10, stop loss $35.95
INSY - Insys Therapeutics
Insys has broken out to a new five month high and has risen for the last week in a bad market. This is showing good relative strength and it should accelerate if the market improves.
Earnings are Nov 12th. We will exit before earnings.
sell short Nov $35 Put, currently $2.05, no stop
New Covered Call Recommendations
New Aggressive Recommendations
EMES - Emerge Energy Services
Emerge is a frac sand distributor plus it provides fuel services to drilling rigs. Emerge has been a high flyer but it pulled back to the 100-day average along with the drop in crude prices and the market weakness. It has held at that $110 level for a week despite some extreme volatility in the market.
I am putting this in the aggressive category because they have no announced earnings date. They announced their last earnings on August 6th which would put their next earnings somewhere the November 6th range. As it gets closer I am sure they will post a date. Previously they announced a date two weeks before the event. Last announcement was July 24th when they announced the quarterly dividend of $1.17.
We will be out of this position before earnings.
Sell short Nov $105 put, currently $5.30, Stop loss $107.85
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CLVS - Clovis Oncology (Aggressive Covered Call)
CLVS - Clovis Oncology (Update Existing Position)
CLVS - Clovis Oncology (Covered Jan Call)
FB - Facebook (Long Term Short Put)
PRAN - Prana Biotech (Short Put - Update)
SRPT - Sarepta Therapeutics (Covered Call)
ISIS - ISIS Pharma (Covered Call)
AVGO - Avago Technologies (Short Put)
ASPS - Altisource Portfolio Soln (Short Put)
TKMR - Tekmira Pharma (Short Put)
TKMR - Tekmira Pharma (Covered Call)
ARWR - Arrowhead Research (Covered Call)
GPRO - GoPro (Aggressive Short Put)
CLR - Continental Resources (Long Term Short Put)
LNG - Cheniere Energy (Long Term Short Put)
AMBA - Ambarella (Short Put)
GPRO - GoPro (Aggressive Short Put)
MBLY - Mobileye (Aggressive Short Put)
There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.
Here is the most common margin calculation for naked puts.
100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))
For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.